Big ticket items like a car, RV or home repair can enhance your lifestyle, but these expensive purchases could short-circuit your everyday budget. Planning and saving for large purchases allows you to protect your financial portfolio. Here are our tips for saving for a big purchase.
Evaluate Needs vs. Wants
Your refrigerator, car or furnace may be old, outdated or inefficient. In this case, an upgrade could be a wise investment. But before you splurge on a new model, evaluate your needs versus your wants. Consider if you actually need the latest, greatest or most expensive model or if a different option will do.
Compare Your Options
Before you start saving for a big purchase, research what’s available. For example, as you shop for a fifth wheel trailer, visit local dealers and make a chart of the different styles, features and costs. Use your research to find the model that’s right for your budget, needs and lifestyle.
Choose a Payment Method
Decide how you’ll pay for your large purchase. You can choose cash, financing, credit, or a combination of these three options. The option you choose depends on your personal financial portfolio, lifestyle goals, credit score, and preferences.
- Cash can reduce the overall cost of big ticket items. Many sellers will negotiate the final price for customers who pay cash. Also, a cash payment will eliminate costly interest payments and debt.
- Financing could be offered by the seller or lender. The lender loans you the money for the purchase and sets up a payment plan. You take possession of the item and make regular payments until the item is paid off.
- Credit requires you to charge your purchase to a credit card that may offer rewards or an interest-free or deferred interest period. First, you must qualify for credit, which depends on your current credit score and payment history. Then, you’ll owe interest on the unpaid balance and could limit the amount of available credit you have for future purchases.
- Combine payment options. For example, use cash to cover the down payment, and finance the remaining balance. Or put some of the purchase on a credit card and finance the rest. The combination you select depends on your personal budget and financial needs.
Create Your Budget
Saving for a big purchase starts with a budget. Plan exactly how much you can afford to spend, and set the date for your purchase. Then, calculate the amount you need to save each month. Or choose a monthly payment amount you can afford if you select financing or credit.
Boost Your Savings
Set up a separate account that’s designated for your large purchase. Then treat your savings as a regularly scheduled commitment like your utility bills or mortgage. Arrange automatic deposits from your main bank account into the designated account.
Additionally, consider these options that provide extra funds you can deposit into your savings account.
- Increase your income. Get a second job. Find a gig like tutoring, childcare or furniture refinishing. Sell household items you no longer need.
- Reduce debt. Pay down credit cards and loans to free up discretionary income for your savings fund.
- Economize on everyday purchases. Record exactly where you typically spend money, and actively reduce spending in these categories. You could brew coffee at home, pack a lunch and select an affordable streaming service rather than costly cable.
- Change your lifestyle. Park your car and walk or take public transportation. Recycle or reuse items during a “no spend” day, week or month. Shop secondhand or use free websites for essential purchases.
- Talk to your financial planner. Discuss your goals and get advice on saving for a big purchase.
Wait for Sales
Ask retailers about sale events that happen throughout the year. For example, buy grills and outdoor furniture during end of season sales or shop last year’s vehicle or RV models in December. You could take advantage of doorbusters, anniversary sales or special occasion sales, too. And consider floor or gently used models that offer additional savings.
Achieve your lifestyle goals without sacrificing your budget by learning how to plan for a big purchase. A little effort could yield big savings.